A Simple Idea that
Simply Works
Upgrading
involves measuring near-term performance of mutual funds (twelve
months and less) and comparing them to returns of other funds
with similar risk. We rank hundreds of funds in this manner
each month. We invest in funds with the best recent returns,
and monitor their performance. When a fund drops in our ranks,
we “Upgrade”.
Upgrading Helps Balance Risk and Reward. It is impossible to eliminate
the risk of losing money in the stock market, but there are ways
to effectively manage that risk.
Only Near-term Returns Indicate Funds Doing Well in the
Current Market Environment. Funds that have outperformed
in recent quarters tend to continue to show strength into ensuing
quarters, a phenomenon
known as “persistence of performance.” Upgrading is
a disciplined method of exploiting this phenomenon.
Risk-based Fund Classification Offers a Full Range of
Investment Opportunities. We group equity funds into
four risk classes, with bond funds grouped into a fifth class.
We don’t isolate international
funds from domestic, or growth funds from value funds. Instead
we segregate funds based on portfolio diversification and downside
risk.
Exploit Trends in Market Leadership Without Being Lured
into Riskier Funds. Funds with the highest returns to rise to the top of our
rankings, whatever their investment approach. We can confidently
compare funds based on current performance, and move between them
without increasing our overall portfolio risk.
Gradually Move to the Top. Instead
of getting whipsawed by the market’s moves, we move incrementally
to the top-ranked funds by progressively selling the lower ranked
funds and reinvesting
in the new market leaders.
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